How Europe’s biggest IPO ($11 billion) will test investors appetite…

NG Groep will try to execute Europe’s biggest initial public offering this year even as investor demand declines and competing share sales increase.

The largest Dutch financial-services company is seeking to value its European insurance unit NN Group at as much as €8bn ($11bn) in a transaction that may raise as much as €2bn, according to three people with knowledge of the matter. The IPO may be announced as early as next week, said the people, who asked not to be named as the details aren’t public.

The deal, on the heels of Lloyds Banking Group announcement’s this week that it will sell 25% of its TSB consumer bank, comes amid declining investor demand and growing IPO supply. Last week was Europe’s busiest for IPOs in 2014, data compiled by Bloomberg show, even as UK. insurance provider Saga priced its sale at the bottom of an offered range and retailer Fat Face Group canceLled its offering.
“At this point there are many IPOs so supply exceeds demand, and therefore as an investor you can get a higher discount,” said Corne Aben, who helps manage about €1.5bn, including ING shares, at Amsterdam-based Optimix Vermogensbeheer. A spinoff would be a better option for ING shareholders, he said.

ING rose as much as 0.5% to €10.26, reaching the highest level in two weeks, and traded little changed at 9:57am Amsterdam time.
Shares of companies that have gone public in Europe this year have underperformed the wider market. The Bloomberg European IPO Index, which tracks companies that have sold shares, has risen by 0.5% in 2014, compared with a gain of 5% in the STOXX Europe 600 Price Index.

Still, there may be long-term demand for insurance companies. The NN Group sale comes after Amsterdam-based ING reduced its ownership in the US unit, now named Voya Financial Inc, to about 43%. Shares in Voya have advanced about 90% since they were sold at $19.50 apiece in May 2013.

“If NN comes to the market well capitalized and at the right price, it would probably be an asset I’d be willing to look at,” said Patrick Lemmens, who oversees about $10bn in global financial-services stocks at Orix Corp’s Robeco Groep in Rotterdam. ING this month won regulatory approval to proceed with its IPO plans after agreeing to inject 850mn euros in NN Group to bolster its capital. In April, three Asian investors, including RRJ Capital Ltd, agreed to invest 1.28bn euros in NN Group before its IPO.

The “base case scenario for divestment is an IPO, and we’re preparing for a transaction in 2014 depending on market circumstances,” said Victorina de Boer, a spokeswoman for ING. She declined to comment on the size of the transaction or the valuation. ING hired JPMorgan Chase & Co, Morgan Stanley, Deutsche Bank and ING Bank to manage the IPO, according to two people with knowledge of the process. Spokesmen for the banks all declined to comment. 

If the IPO raises €2bn, it will be the largest in Europe this year, beating Luxembourg-based cable provider Altice’s sale that raised $2bn, according to data compiled by Bloomberg. ING needs the proceeds from the NN Group sale to help pay off debt, a prerequisite for the company’s final breakup into a separate bank and insurer. It may consider spinning off the remainder to existing ING Groep shareholders, chief executive Officer Ralph Hamers said at the company’s annual general meeting on May 12.

Hamers, 48, said on May 7 he’s confident that sales of the company’s remaining stake in Voya, a 10% holding in Sul America in Brazil and NN Group will generate the proceeds needed to cover debt at group level to allow ING’s breakup. Based on market values of Voya and Sul America, ING would have to raise €400mn in the NN Group IPO, according to a presentation the same day. NN Group has mostly life-insurance operations in the Netherlands, Poland, Turkey, Czech Republic, Slovakia, Romania, Hungary, Bulgaria, Belgium, Spain, Greece, Luxembourg and Japan. It also includes ING’s asset-management arm.